Inflation back to zero as Bank of England hints at interest rate rise

15 Jul 2015

The rate of UK Consumer Prices Index (CPI) inflation fell to 0% in June, down from 0.1% in May, according to the Office for National Statistics (ONS).

The ONS claims that the main contributors to the drop were falls in clothing and food prices, along with smaller rises in air fares. The rate of Retail Price Index (RPI) inflation was unchanged from May at 1%.

The CPI rate has been registering at around the zero mark since February, even dropping into negative territory at -0.1% in April for the first time on record. It remains well below the Bank of England’s target rate of 2%.

Howard Archer, chief UK economist at Global Insight, welcomed the continued low inflation rate, saying: “With earnings growth currently seeing clear improvement and employment high and rising, purchasing power is currently in rude health.”

Meanwhile, the Bank of England governor Mark Carney has hinted that a rise in interest rates may at last be on the cards.

Speaking to Parliament's Treasury Committee, he said: "The point at which interest rates may begin to rise is moving closer. Once rates begin to adjust, we expect for those adjustments to be at a gradual pace and to a limited extent."

UK rates have been at the record low of 0.5% for more than six years, and few analysts expect the Bank to raise rates until at least next year.